International oil prices have been highly volatile. India imports more than 80% of its crude oil. There might be a possibility that a fall in oil prices will lead the Government to raise Taxes.
For 2018, crude oil imports were pegged at 217.08 MT amounting to $114.5 billion while Domestic crude oil production was 34.2 MT.
The current breakdown of Petrol/Diesel
According to figures released by Indian Oil Corp. Ltd (country’s largest refinery) released on Monday.
Name
Petrol (INR per Liter)
Diesel (INR per Liter)
1.
Excise Duty
19.98
15.83
2.
Value Added Tax (VAT) – by Delhi state government
15.25
9.48
3.
Final Price
71.71
64.3
Global oil prices declined by 30% on 9th of March, 2020!
Taxes on petroleum & petroleum products are an important source of revenue for both the Union government and State Government.
Devendra Kumar Pant, chief economist at India Ratings and Research said that the government might tinker with excise collections. This would be in response to the fiscal challenges originating from slower growth and tax collections. He added, “With crude prices falling by 30% and slower growth of tax collections, a few states have already increased VAT rates on petrol and diesel; as a result, consumers may not get entire benefits of low crude prices.”
With an increase in excise duty on petrol & diesel prices, fuel retailers might not be able to reduce the prices for their consumers. This will limit the extent to which the consumers will benefit from low crude oil prices.
Madan Sabnavis, chief economist at Care Ratings said, “The fall in crude oil prices means lower revenue for the government at a time it is working hard to meet budgetary targets.”
The excise duty on auto fuel has been raised several times since 2014. This was solely to raise resources for welfare schemes. The government, in October 2018 made a INR 2.5/liter cut in petrol and diesel prices. This was done by lowering excise duty and asking state-run fuel retailers to take a hit of INR 1 on every liter of auto fuel. But in the July 2019 Budget, it raised back the taxes. FM Nirmala Sitharaman, in her first budget raised the special additional excise duty & road and infrastructure cess by INR 1/liter each on petrol and diesel.
There is a tendency that the Government might hike the current tax rates to meet tax revenue targets. As a result consumers might not get the entire benefits of low crude prices.
But will the government ever pass on the benefits to the consumer?
No matter what the Government decides, the likelihood of consumers benefiting from the same is really low unless the oil prices stabilize.
It’s that time of the year again, ‘Catch-up Investments‘ is the talk of the town. 31st March is the last date to make your catch-up investments and avail Tax Deductions on them. And amid this rush to invest and claim Tax-deductions, oftentimes, people tend to make hasty Investments.
So Let’s look at the Tax Saving Investments under chapter VI-A that one can opt for (considering the current market situation) before this Financial Year ends.
Why all the Fuss?
As you might already know, the global economy has taken a hit due to the spread of the Corona Virus. Stock Markets worldwide have been affected, global trade is declining. Apart from that, in just India 471 stocks have hit a 52 week low. This means that investors will be more tentative about making risky bets. Since November of 2019, India’s economy had slowed down. It severely impacted the Investments which were at a negative 1%.
Considering the prevailing economic condition of India, these Investment options could answer your skepticism.
Equity Linked Savings Scheme (ELSS)
Indian Markets weren’t doing exactly great until now, but ever since the unprecedented rise of Corona Virus, Indian Markets have worsened. This might translate as a ‘No-Go‘ for some people. But in reality, investing in ELSS now, especially when the markets are down, could make sense for some.
Investing in ELSS could mean that an individual would be able to buy more shares for a comparatively less price since the stocks of many companies are at all-time low prices. So, when the markets recover, the return could be better than usual. That could be a bargain…
But, it goes without saying that deep market knowledge is essential for investing in ELSS. Individuals with a low-risk appetite should refrain from investing in ELSS.
Adding on, according to Tom Orlik, the Chief Economists at Bloomberg Economics said that “The Indian economy is relatively insulated (in regards to impact from Corona Virus)”. The Indian Domestic markets are huge in their own right, so they can fend off the damage up to a great extent! Globally it is estimated that damage of $50 Billion has been done so far. Whereas India’s Losses only amount to around $350 Million. But Orlik’s statement shouldn’t be held conclusive.
However, Tedros Adhanom, The head of the World Health Organization (WHO) said, “we are in uncharted territory“. So, it goes without saying that markets might recover, or plummet even further. Hence it is advisable to tread these waters with caution!!
Individuals should research in-depth before investing in the equity of Chemical, Textiles, Automotive, and Machinery. Primarily because these industries have high contributions with the virus Infected countries. Let’s not forget you get 80C deduction up to INR. 1,50,000 on this investments.
Employee Provident Fund (EPF) & Public Provident Fund (PPF)
EPF and PPF are investment options u/s 80C of Chapter VI A. For people with a low-risk appetite, EPF and PPF are save bets to invest. PPF falls under the ‘Exempt-Exempt-Exempt‘ scheme and thus, all deposits, interests, and withdrawals are tax-exempt.
The Lock-in period in PPF is 15 years and it suits best for people who have a low-risk appetite but wish to earn medium returns. PPFs approximately yield an 8% interest, this interest can also be reinvested. PPF allows account-holders to avail of a loan facility in the 4th and 6th year out of the credit amount between the 3rd and 5th financial year.
EPF is typically 12% of employee’s contribution + 12% of employer’s contribution. A company with more than 20 employees must comply with EPF rules as per the Employee Provident Fund Act.
It is worth noting that employees earned an annual interest of 8.65% in F.Y 18–19 through investment in PF. However, premature withdrawals for specified purposes, including housing and marriage are subject to being taxed. And the balance in employee’s account is paid as a lump sum on retirement, or in case of a sudden crisis like permanent disablement or death.
Investment in Unit Linked Insurance Plan (ULIP)
ULIP is an insurance plan u/s 80C with the option to invest in equity markets. Hence it is recommended that only individuals with a definite investment objective, high-risk tolerance, and thorough knowledge should invest in ULIP.
Lock-in period in ULIP is 5 years which is relatively less. Historically, ULIPs have given a 9-12% return. But that may vary according to the incumbent market situation.
However, under ULIPs, the investor can switch funds between growth, equity, balanced and income funds based on the market situation and investment objectives. ULIPs allow 4 switches every year for free. This should be enough for a seasoned investor to find his groove.
Tax Saving Fixed Deposits
Tax Saving FDs u/s 80C are a classic example of a contingency investment. Tax Saving FDs serve two purposes as you might have guessed. They allow you to invest in a risk-free manner with guaranteed returns and are also tax-exempt. That’s like hitting two birds with a single stone!
Unlike your regular Fixed Deposits, Tax Saving Fixed Deposits have a lock-in period of 5 years. Clubbed with an approximate 7-9% return, it looks like a safe bet for people with low-risk appetite.
Tax Saving FDs are best suited for investors with a conservative investment style. Usually, senior citizens find this scheme to be more compelling as compared to other investment options.
Below is a table that compares the investment options when they are stacked against each other.
Particulars
ELSS
PPF
NSC
ULIP
Bank Deposit
Tenure
3
15
5
5
5
Min Investment
500
500
100
10,000
Variable
Max Investment
1,50,000
1,50,000
1,50,000
1,50,000
1,50,000
Risk Rating
High
Low
Low
Low
Medium to High
Interest Frequency
NA
Annually
Half-Yearly
Quarterly
NA
Taxation
Tax-Free
Tax-Free
Taxable
Taxable
Maturity is Tax-free
Apart from these investment options, investors can also choose to invest in NPS, NSC, SCSS and the Sukanya Samriddhi Yojna and claim a Tax Deduction. However, the importance of choosing the correct investment was never more paramount. The sluggish economic trends could provide an opportunity to invest in schemes at a bargain. Only to have them sold off at a premium. But that requires clarity in personal finance goals and correct assessment of the risk associated.
As you might have guessed, Advance Tax is a “pay-as-you-earn” scheme for the periodical payment of your yearly tax in advance. Advance Tax needs to be paid if your Tax Liability is INR 10,000 or more. Advance Tax can be paid in 4 equal installments at equal time gap.
Lets learn more about the Advance Tax…
Why Advance Tax?
Believe it or not, Advance Tax is gaining more popularity than you think. Since last Financial Year, Advance Tax collection from Individuals rose from INR 24,000 Crore. to INR 33,000 Crore. That is nearly 37.5 % increase from the previous Financial Year.
However, the Corporate Advance Tax took a free fall of 5.2% in December 2019. Since FinMin, slashed the corporate Tax rate to 22%, economists predicted a strong possibility of increased Advance Tax collection. But, as the Murphy’s Law states, “anything that can go wrong, will go wrong“, and it did go all wrong for the Indian Stock Markets and the Economy. Advance Tax payment by companies was reduced by INR 4,000 Crore.
Advance Tax has multi-faced benefits. Not only the Government gets its Tax Revenues throughout the year, but also it helps mitigate the Tax Burden on taxpayers at end of every Financial Year.
Fun Fact: Investors in the Stock Markets often use the publicly available information of the Advance Tax payments for companies to gauge upcoming quarterly results. Studying the company’s normal Tax rate, they work back to guess possible profits by comparing it with profits in past years.
Advance Tax is required to be paid by Individuals/corporate taxpayers if their Tax Liability is INR 10,000 or more. Keep in mind, Salaried individuals don’t have to pay advance tax as employers deduct their TDS. Advance Tax is therefore only applicable to non-salary sources of income (including income from Rent, Capital Gains, Business or Profession). However, Salaried Individuals are liable to pay advance tax if TDS is not deducted or incorrectly deducted.
Also, worth noting that self-employed individuals, businessmen, corporates and companies too need to pay Advance Tax.
When to pay Advance Tax?
Advance Tax (for Individuals and Corporate Taxpayers) can be paid on a quarterly basis as per the dates below:
Due Date of Installment
Amount Payable
On or Before 15th June
15% of the Advance Tax
On or Before 15th September
45% of the Advance Tax
On or Before 15th December
75% of the Advance Tax
On of Before 15th March
100% of the Advance Tax
Advance Tax for Individuals who have opted for Presumptive Taxation under section 44AD and 44ADA -Business and Professional Income
Due Date
Advance Tax Payable
On or Before 15th March
100% of the Advance Tax
Advance Tax for Traders
In case of Traders, it is generally difficult to project their income. They have two approaches on hand:
Approach 1
Traders can pay Advance Tax at the end of each quarter by estimating their trading income. Depending on the actual Tax Liability, traders could obtain a refund (if their Advance Tax payment is more than actual Tax Liability). However, in case the Trader estimated his Tax Liability less than the actual Tax Liability, a penalty of 1% on the differential amount has to be paid u/s 234C.
Approach 2
Since Traders can’t estimate their trading income, they can pay advance tax on the due date of last quarter i.e, 15th March. In this case, if advance tax paid is less than the actual tax liability, penal interest u/s 234C will be levied for all 4 quarters.
For Traders who are planning to pay Advance Tax, it is suggested that they check for any Unrealised Losses. These Unrealised losses can be sold and be made Realised Losses which can further be set off against Realised Profit to reduce their Tax Liability. This Concept is called Tax Loss harvesting
All in all, Advance Tax is one of those few methods of paying Taxes which have multiple benefits. We feel that, as and when the taxpayers start to realize this, the number of people paying Advance Tax will increase steadily. It is also possible that Advance Tax becomes the main medium for the Income Tax Department for collecting Taxes.
It is a wild guess, but…any thing that can happen, will happen!!
Do you know that nearly 80% of the Individuals who start trading in stock markets, tend to quit within the first 5 months? And yet every year millions upon millions of Individuals start trading on a full time basis. Many of the aspiring traders try to emulate the work of Mr. Rakesh Jhunjhunwala (the most successful trader of India). But, as George Clooney rightly says in Ocean’s 11 “The house always wins“, most Traders suffer losses more than profits.
Lets look at how you can manage your trading losses and reduce your Tax Liability.
Tax Loss Harvesting
To Understand what is Tax Loss Harvesting, you need to understand certain terminologies.
Realised Loss is the loss which is incurred after selling a share or mutual fund. Subsequently, if a loss is certain on the sale of a share or mutual fund but it hasn’t been sold yet is called an Unrealised Loss.
Similarly Realised Profit is the profit on the sale of a share or a mutual fund. Before the end of every financial year, the stocks that have unrealized losses can be sold. We figured that there are many traders who don’t know that they can convert Unrealised losses into Realised Losses. And by adjusting theselosses against Realised Profits, their net Tax liability can be reduced. This is calledTax-loss Harvesting.
Let us understand this further by an example:
Before Tax Loss Harvesting Realised Profit = INR 3,85,000 Unrealised Loss = INR 1,27,500 Total Income = INR 3,85,000 Tax Liability = 15% of INR 1,35,000 (385000-250000) = INR 20,250
After Tax Loss Harvesting The trader can sell 300 shares of Crest and 250 shares of Deepakfert to Realise the loss of INR 1,27,500 Realised Profit = INR 3,85,000 Realised Loss = INR 1,27,500 Loss of INR 1,27,500 is set off against Rs. 3,85,000 Total Income = INR 2,57,500 Tax Liability = 15% of INR 7,500 (257500-250000) = INR 1,125
After calculating the Tax Liability, an Individual should decide whether to opt for Tax Loss Harvesting or not. However, if the trader wants to hold the stock, he can buy the stock again in the next financial year so that the portfolio remains unchanged.
Usually, Investors tend to sell winning investments while holding on to their losing investments. Opting for Tax Loss Harvesting would be a life saver for many Traders.
Keep in mind…
Traders who wish to do Tax Loss Harvesting need to understand which loss can be set off against which profits as per the set-off rules of Income Tax Act.
Long Term Capital Losses (LTCL) can only be set off against Long Term Capital Gains (LTCG)
Short Term Capital Losses (STCL) can be set off against Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG)
In no situation Short Term Capital Loss (STCL) and Long Term Capital Loss (LTCL) be set off against any other Income
Also, for the Traders who are planning to pay Advance Tax, it is suggestible that they check for any Unrealised Losses. Because, by setting them against Realised profits they will save on Taxes.
In the above example, the Tax Liability gets reduced to INR 1,125. Even after adding the brokerage fees, the amount will be minuscule in comparison to the Taxes that the traders are liable to pay.
We figured that many Traders are unaware of this method of reducing their Tax Liability. Considering that there are nearly 20 Million Traders in India, Tax loss harvesting can dramatically reduce their Tax Liabilities.
Also, you must be aware of the recent sluggish trends of Indian Markets. And hence, many Traders are having heavy Unrealised losses. Ergo, Tax Loss harvesting could be a great opportunity to partially benefit from the sluggish markets.
Since, the financial year is ending on 31st March, managing losses has a paramount importance and Tax Loss Harvesting can really help reduce Taxable Income and thus, the Income Tax Liability.
Amazon is a very sophisticated tax player. It is very much the canary in the coal mine. They’re really doing what a lot of politicians wish more companies would do.
Amazon is a huge company. But you know just how huge it really is? It is one of the only two US companies to reach over a trillion dollar valuation. No one in history has become as rich as quickly. It has a hundred million prime subscribers globally. If you put those prime subscribers in one country, it would be the fourteenth largest in the planet.
Amazon avoided Federal Tax on more than $11 billion dollars of profit in 2017, despite being such a massive company. And somehow they got a $129 Million tax rebate for the year 2018.
How did they did it?
First, There is a Tax Bill…
President Trump’s signature tax legislation lowered the corporate tax rate from 35 percent to 21 percent. Corporations were literally going wild over this. This immediately slashed Amazon’s tax burden.
Second, Amazon’s shrewd use of revenue…
Amazon plows a large portion of the revenue back into itself to cultivate long term growth. Amazon has actually been self funding for a long time now. The company challenged significant cash flow.
One of the most amazing things about Amazon is that the company does not really rest their laurels and continuously tries to innovate. It is constantly trying to heed the needs of the customer. This started in the early stages with Bezos using the strategy to get big fast. Thereby helping Amazon eclipse its once arch rival Barnes & Noble. Since then it has helped Amazon gobble up countless other retail markets as well, embark on lucrative ventures like Amazon Web Services, and even become a Hollywood studio with shows like “The Marvelous Mrs. Maisel” and “Jack Ryan.”
Amazon has invested so much revenue in itself over the years that sometimes it didn’t even make a profit. And when that happened, it could carry forward losses to write off on future tax bills. In 2018, those carry forward losses eligible for federal write off amounted to $627 million.
Third, the massive federal tax credits…
The company reports are primarily related to research and development. These include Amazon’s A.I. assisted logistics network & its research for consumer electronics products. Amazon has poured tens of billions of dollars into research and development over the years.
The above is not the only tax credit Amazon qualifies for. The major tax credits were availed from the expenses that is allowed for investments in plants, equipment, buildings and things of that sort. Trump’s Tax Cuts and Jobs Act supercharged this credit. This was a perk that Amazon cashed in on…the very idea behind expanded credit.
Fourth, industry performance…
The U.S. economy has not been as productive in the recent years. There was a solution for it. The government made plans to help companies invest more in machinery and training. Thus resulting in higher productivity.
Not everybody buys into this reasoning. The tax breaks Amazon got, they were being rewarded for what they were going to do anyway. Because when you’re a company as successful, as profitable, as cash rich as Amazon is, you make investments. You have the money to do them and you see the need for those investments. Amazon had 1.4 billion dollars in total available tax credits by 2018.
Fifth, stock is gold…
Stock based employee compensation…Amazon uses this extensively. This allows Amazon to pay employees using stock and then take the value of that stock off their tax bill. Employees, especially executives are rewarded with stocks. Amazon’s stocks were rising fairly substantially for many years. The size of that stock based compensation is really large now. It affords Amazon a large write off!
Upon a closer look the federal government ends up making just as much in the long run from stock based compensation because the stock is taxed when it’s sold.
On the contrary, there have been concerns because of the major difference between the value of the stock when it’s offered to employees versus the value when it’s written off. Executives have the right to purchase a certain number of shares of stock at a set price. The price of the stock goes way up. The company is then allowed to write off the value of that stock and suddenly the tax breaks can be huge. Amazon deducted about 1.1 billion dollars from its tax liability using this method in 2018.
That is how Amazon paid Amazon Amazon avoided Federal Tax for 2 years in a row. It was a whopping $0.
Amazon’s story is not exactly unique. Another disruptor was Netflix and the traditional auto company General Motors. Both reported expecting net federal income tax benefits in 2018 annual filings. When asked, Netflix highlighted the 131 million dollars it paid in taxes total. But it did not break out its federal bill.
All of this seems to be part of a larger trend over the past 70 years. There has been a decline in corporate income tax revenues in the decade.
The bottom line being, it is quite normal for some corporations to pay no income tax to the federal government.
